Credit Instruments and Global Liquidity

Will market conditions normalise in 2023?

Global liquidity and credit markets are closely linked. The more liquidity - or purchasing power - in the system, the lower borrowing rates are. Central banks, such as the Federal Reserve, impact liquidity conditions through their monetary policy actions. For example, a slimmer balance sheet and higher interest rates means lower liquidity and thus more volatility across credit markets. Below is some of the latest research on these crucial topics that will likely define 2023 in a meaningful way.

Credit Selection Supports the Allure of European Loans (PGIM Fixed Income)

Senior secured loans offer similar characteristics to high-yield credit, but with a few added benefits, such as sitting higher in a company’s capital structure.

Fixed Income Views: The Markets vs. The Fed (Franklin Templeton Investments)

For compliance reasons, this paper is only accessible in the EMEA region

Both headline and core inflation are on course to remain stubbornly high well into 2023. As such, central banks will likely maintain their monetary policy stance for a while.

Trapped Liquidity (Fed Guy)

The global financial system's plumbing - i.e. various channels of liquidity - has been under stress due to the Fed's tightening campaign. Will the central bank pivot soon?

Do Not Underestimate the Impact Of Quantitative Tightening (T. Rowe Price)

For compliance reasons, this paper is only accessible in certain geographies

Quantitative Tightening (QT) may have already affected economies as global purchasing power under a strong U.S. dollar was reduced.

Global Credit Outlook 2023: No Easy Way Out (S&P Global Ratings)

Over the past year, global credit has been in the middle of a storm caused by a drought of liquidity due to tighter monetary policy. Will 2023 be any different for this sector?

Calmer Bonds Will Help Stocks (BlackRock)

For compliance reasons, this paper is only accessible in the United States

If bond rates normalise, equity valuations may follow suit. However, this depends on what central banks decide to do in the coming months.

The Dollar’s Imperial Circle (FRBNY)

The U.S. dollar remains the world's most important currency, both in terms of global trade and financial stability.

Central Banks Vs Inflation: Comparing Global Policy Responses (LGIM)

For compliance reasons, this paper is NOT accessible in the United States and Canada

What can markets expect of monetary policy in 2023? This paper offers a few potential paths for central banks.

Private Credit Outlook 2023 (Pitchbook)

Private credit remains an attractive asset class in the fixed income sector as global allocators look for income and capital growth in the new normal.